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Monday, September 17, 2012

Market Update: I Fought the Fed and the... Fed Won

Part of my weekend self-amusement was to hastily re-write the Bobby Fuller Four's "I Fought the Law" (my lyrics below -- the original song can be found here):

Makin’ trades in the ... hot sunI Fought
the Fed and the ... Fed wonThey
printed money, 'cause they ... had noneI Fought the Fed and the ... Fed won

(chorus one)Don’t get
bearish and don’t be sador Ben will toast your buns,The economy will be
fine if you buy an iPad…I Fought the Fed and the ... Fed wonI Fought the
Fed and the ... Fed won

They’re robbin'
people with an . . . inflation gunI Fought the Fed and the ... Fed won

I miss reality and the ... good
funI Fought the Fed and the ... Fed won

(chorus two)Quantitative Easing is the latest fadit seems
they're never done,Ben doesn’t care if it all ends bad…I Fought the Fed
and the ... Fed wonI Fought the Fed and the ... Fed won

Friday saw the rally extend, with the central bank liquidity pumps running at high speed. It seems reasonable to assume the bullish wave counts are probably in control, given the Fed's announcement of QE-Infinity -- and the behavior of momentum indicators, which have accelerated accordingly.

It now appears that the dollar chart I published on July 19 (almost the exact top in USD) was a huge warning to both dollar bulls and equities bears. Some highlights from that article:

Caution is warranted for those considering dollar longs.A funny thing happened after I finished this chart, too: Europe announced it was going to save itself (I know: again!), and the Euro launched a huge rally against the dollar. However, I think we need to be very careful about discounting that notion, because I had this chart done well before that announcement was made... the implications for the less-bullish count are that the dollar rally is over on an intermediate basis.I have been bullish on the dollar non-stop since September 2011 -- but I would now consider my stance as neutral on the dollar as of this moment.

The dollar continues to look bearish and is essentially in crash mode. It is approaching levels where it might find some support, but that blue crash channel is daunting...

For equities, the more bearish ending diagonal option is still technically possible, so I will continue publishing it for the time being, but I think it's probably wise to await some type of confirmation before assuming any bearish outcomes. The market has reached potential levels bears might defend, such as the zone shown on the Nasdaq Composite (COMPQ) chart below... but it's hard to Fight the Fed.

Some possible Fib targets are suggested on the chart if resistance is broken.

The NYSE Composite Index (NYA) continues to look bullish. The breakout I called attention to on September 10 has so far held and accelerated -- and the upside "pop" matches a typical triangle breakout.

Normally, one would expect to see divergences before a meaningful top. No such divergences presently exist.

﻿

An updated chart of light crude oil. The 95 target I mentioned on July 19 has been reached and exceeded, calling into view the next target of 103. RSI has not quite reached a significant overbought condition yet.

Below is one bullish interpretation of the wave structure -- the alternate count to this is even more bullish than the one shown. We'll simply have to wait for the next correction to begin sorting out the counts a bit more.

And finally, the bearish ending diagonal count, which isn't quite dead yet. This count probably has to be considered an underdog at this point, but I'll keep tracking it until the market says I shouldn't. Signals such as the Bollinger Band breakout mentioned on the chart are present, but signals such as this can fail during strongly-trending markets.

In conclusion, the bull case must be respected here. While the ending diagonal is still possible, the indicators aren't really matching the pattern very well anymore. If the bears have any firepower left to Fight the Fed at this point, they're simply going to need to prove it. Trade safe.

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